UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarterly Period Ended:
SEPTEMBER 30, 2000
OR
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from ________ to ________.
Commission File Number 333-30745
COMCAST CABLE COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-2175755
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Market Street, Philadelphia, PA 19102-2148
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes X No
----- -----
--------------------------
As of September 30, 2000, there were 1,000 shares of Common Stock outstanding.
The Registrant meets the conditions set forth in General Instructions H(1)(a)
and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
Page
Number
------
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Condensed Consolidated Balance Sheet as of
September 30, 2000 and December 31, 1999 (Unaudited).......2
Condensed Consolidated Statement of Operations and
Accumulated Deficit for the Nine and Three Months Ended
September 30, 2000 and 1999 (Unaudited)....................3
Condensed Consolidated Statement of Cash Flows for
the Nine Months Ended September 30, 2000 and 1999
(Unaudited)................................................4
Notes to Condensed Consolidated
Financial Statements (Unaudited)......................5 - 10
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations..................11 - 13
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings.........................................14
ITEM 6 Exhibits and Reports on Form 8-K..........................14
SIGNATURE...........................................................15
-----------------------------------
This Quarterly Report on Form 10-Q is for the three months ended September
30, 2000. This Quarterly Report modifies and supersedes documents filed prior to
this Quarterly Report. The SEC allows us to "incorporate by reference"
information that we file with them, which means that we can disclose important
information to you by referring you directly to those documents. Information
incorporated by reference is considered to be part of this Quarterly Report. In
addition, information that we file with the SEC in the future will automatically
update and supersede information contained in this Quarterly Report. In this
Quarterly Report, "Comcast Cable," the "Company," "we," "us" and "our" refer to
Comcast Cable Communications, Inc. and its subsidiaries.
You should carefully review the information contained in this Quarterly
Report and in other reports or documents that we file from time to time with the
SEC. In this Quarterly Report, we state our beliefs of future events and of our
future financial performance. In some cases, you can identify those so-called
"forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions.
Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the risks outlined
below. Those factors may cause our actual results to differ materially from any
of our forward-looking statements.
Factors Affecting Future Operations
We have acquired and we anticipate acquiring cable communications systems
in new communities in which we do not have established relationships with the
franchising authority, community leaders and cable subscribers. Further, a
substantial number of new employees are being and must continue to be integrated
into our business practices and operations. Our results of operations may be
significantly affected by our ability to efficiently and effectively manage
these changes.
In addition, the cable communications industry may be affected by, among
other things:
o changes in laws and regulations,
o changes in the competitive environment,
o changes in technology,
o franchise related matters,
o market conditions that may adversely affect the availability of debt
and equity financing for working capital, capital expenditures or
other purposes; and
o general economic conditions.
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
PART I FINANCIAL INFORMATION
- ------ ---------------------
ITEM 1 FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
------------------------------------
(Unaudited)
(Dollars in millions, except share data)
September 30, December 31,
2000 1999
----------- ---------
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents........................................................... $108.3 $61.0
Investments......................................................................... 146.3 0.4
Cash held by an affiliate........................................................... 34.0
Accounts receivable, less allowance for doubtful accounts of $44.5 and $31.2........ 227.7 128.4
Deferred income tax benefit, due from affiliate..................................... 16.9
Due from affiliates................................................................. 47.9
Other current assets................................................................ 43.3 29.7
----------- ---------
Total current assets........................................................... 590.4 253.5
----------- ---------
INVESTMENTS............................................................................ 602.7 119.4
----------- ---------
PROPERTY AND EQUIPMENT................................................................. 5,896.3 4,354.0
Accumulated depreciation............................................................ (1,609.8) (1,477.4)
----------- ---------
Property and equipment, net......................................................... 4,286.5 2,876.6
----------- ---------
DEFERRED CHARGES....................................................................... 20,554.2 9,010.0
Accumulated amortization............................................................ (2,930.9) (2,291.7)
----------- ---------
Deferred charges, net............................................................... 17,623.3 6,718.3
----------- ---------
$23,102.9 $9,967.8
=========== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses............................................... $842.6 $461.2
Accrued interest.................................................................... 142.9 62.6
Current portion of long-term debt................................................... 1,009.9 202.6
Due to affiliates................................................................... 160.2
----------- ---------
Total current liabilities...................................................... 1,995.4 886.6
----------- ---------
LONG-TERM DEBT, less current portion................................................... 5,859.7 4,735.3
----------- ---------
MINORITY INTEREST AND OTHER............................................................ 160.8 237.3
----------- ---------
DUE TO AFFILIATE....................................................................... 664.2
----------- ---------
DEFERRED INCOME TAXES, due to affiliate................................................ 4,230.6 1,635.6
----------- ---------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDER'S EQUITY
Common stock, $1 par value - authorized and issued, 1,000 shares....................
Additional capital.................................................................. 14,693.1 4,931.4
Accumulated deficit................................................................. (3,785.5) (3,150.1)
Accumulated other comprehensive (loss) income....................................... (51.2) 27.5
----------- ---------
Total stockholder's equity..................................................... 10,856.4 1,808.8
----------- ---------
$23,102.9 $9,967.8
=========== =========
See notes to condensed consolidated financial statements.
2
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
----------------------------------------------------------------------
(Unaudited)
(Dollars in millions)
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
---------- ----------- ---------- -----------
SERVICE INCOME....................................................... $2,922.7 $2,115.9 $1,013.4 $762.3
---------- ----------- ---------- -----------
COSTS AND EXPENSES
Operating......................................................... 1,232.9 918.7 387.3 322.8
Selling, general and administrative............................... 647.1 488.8 202.9 177.2
Depreciation and amortization..................................... 1,549.5 718.9 564.5 264.2
---------- ----------- ---------- -----------
3,429.5 2,126.4 1,154.7 764.2
---------- ----------- ---------- -----------
OPERATING LOSS....................................................... (506.8) (10.5) (141.3) (1.9)
OTHER (INCOME) EXPENSE
Interest expense.................................................. 370.6 254.7 129.7 95.7
Interest expense on notes payable to affiliates................... 5.2 1.6
Investment (income) expense and other, net........................ (27.8) 0.5 3.8 (3.4)
Equity in net losses (income) of affiliates....................... 14.1 1.5 6.6 (1.0)
---------- ----------- ---------- -----------
356.9 261.9 140.1 92.9
---------- ----------- ---------- -----------
LOSS BEFORE INCOME TAX (BENEFIT) EXPENSE
AND MINORITY INTEREST............................................. (863.7) (272.4) (281.4) (94.8)
INCOME TAX (BENEFIT) EXPENSE......................................... (234.4) (18.8) (77.0) 11.0
---------- ----------- ---------- -----------
LOSS BEFORE MINORITY INTEREST........................................ (629.3) (253.6) (204.4) (105.8)
MINORITY INTEREST.................................................... (82.6) (24.9)
---------- ----------- ---------- -----------
LOSS BEFORE EXTRAORDINARY ITEMS...................................... (629.3) (171.0) (204.4) (80.9)
EXTRAORDINARY ITEMS.................................................. (6.1) (1.0)
---------- ----------- ---------- -----------
NET LOSS............................................................. (635.4) (171.0) (205.4) (80.9)
ACCUMULATED DEFICIT
Beginning of period............................................... (3,150.1) (2,896.4) (3,580.1) (2,986.5)
---------- ----------- ---------- -----------
End of period..................................................... ($3,785.5) ($3,067.4) ($3,785.5) ($3,067.4)
========== =========== ========== ===========
See notes to condensed consolidated financial statements.
3
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------
(Unaudited)
(Dollars in millions)
Nine Months Ended
September 30,
2000 1999
----------- ----------
OPERATING ACTIVITIES
Net loss.............................................................................. ($635.4) ($171.0)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization...................................................... 1,549.5 718.9
Non-cash interest (income) expense................................................. (1.4) 0.6
Non-cash interest expense on notes payable to affiliates........................... 5.0
Deferred expenses charged by an affiliate.......................................... 95.9 106.8
Equity in net losses (income) of affiliates........................................ 14.1 1.5
Gain on sales of investments, net.................................................. (31.1) (0.5)
Minority interest.................................................................. (82.6)
Extraordinary items................................................................ 6.1
Deferred income tax benefit, due to affiliate and other............................ (226.2) (29.4)
----------- ----------
771.5 549.3
Changes in working capital accounts................................................ 121.8 (9.2)
----------- ----------
Net cash provided by operating activities................................... 893.3 540.1
----------- ----------
FINANCING ACTIVITIES
Proceeds from borrowings.............................................................. 3,030.9 146.5
Retirements and repayments of long-term debt.......................................... (3,167.9) (1.0)
Proceeds from notes payable to affiliates............................................. 40.3
Repayment of notes payable to affiliates.............................................. (45.0)
Capital contributions from Parent..................................................... 331.0
Net transactions with affiliates...................................................... 17.2 4.6
Deferred financing costs and other.................................................... (34.4) 8.1
----------- ----------
Net cash provided by financing activities................................... 176.8 153.5
----------- ----------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired.................................................... (81.5) (41.8)
Capital expenditures.................................................................. (822.7) (471.4)
Decrease (increase) in cash held by an affiliate...................................... 34.0 (87.6)
Additions to deferred charges and other............................................... (152.6) (105.4)
----------- ----------
Net cash used in investing activities....................................... (1,022.8) (706.2)
----------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................................... 47.3 (12.6)
CASH AND CASH EQUIVALENTS, beginning of period........................................... 61.0 34.5
----------- ----------
CASH AND CASH EQUIVALENTS, end of period................................................. $108.3 $21.9
=========== ==========
See notes to condensed consolidated financial statements.
4
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The condensed consolidated balance sheet as of December 31, 1999 has been
condensed from the audited consolidated balance sheet as of that date. The
condensed consolidated balance sheet as of September 30, 2000, the
condensed consolidated statement of operations and accumulated deficit for
the nine and three months ended September 30, 2000 and 1999, and the
condensed consolidated statement of cash flows for the nine months ended
September 30, 2000 and 1999 have been prepared by Comcast Cable
Communications, Inc. (the "Company"), an indirect wholly owned subsidiary
of Comcast Corporation ("Comcast"), and have not been audited by the
Company's independent auditors. In the opinion of management, all
adjustments necessary to present fairly the financial position, results of
operations and cash flows as of September 30, 2000 and for all periods
presented have been made.
Certain information and note disclosures normally included in the
Company's annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
These condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Company's December 31, 1999 Annual Report on Form 10-K filed with the
Securities and Exchange Commission (the "SEC"). The results of operations
for the periods ended September 30, 2000 are not necessarily indicative of
operating results for the full year.
Reorganization
On August 1, 2000, two wholly owned subsidiaries of Comcast, Comcast LCI
Holdings, Inc. (successor by merger to Lenfest Communications, Inc.) and
Comcast JOIN Holdings, Inc. (successor by merger to Jones Intercable,
Inc.) were merged into the Company (the "Reorganization"). Comcast LCI
Holdings, Inc. (and its subsidiaries) ("LCI Holdings") owned cable systems
and was acquired by Comcast in January 2000. Comcast JOIN Holdings, Inc.
(and its subsidiaries) ("JOIN Holdings") owned cable systems and was
acquired by Comcast in April 1999 and March 2000. The Reorganization was
accounted for at Comcast's historical cost in a manner similar to a
pooling of interests. Accordingly, the accompanying condensed consolidated
financial statements include the accounts of the merged subsidiaries since
the dates of their acquisition by Comcast (see Note 3). The Reorganization
had no significant impact on the Company's condensed consolidated
statement of cash flows during the nine months ended September 30, 2000
due to its noncash nature (see Note 7).
Reclassifications
Certain reclassifications have been made to the prior years' condensed
consolidated financial statements to conform to those classifications used
in 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SFAS No. 133, as Amended
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This statement
establishes the accounting and reporting standards for derivatives and
hedging activity. Upon the adoption of SFAS No. 133, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In July 1999 and June
2000, the FASB issued SFAS No. 137 and SFAS No. 138 which deferred the
effective date for implementation of SFAS No. 133 to fiscal years beginning
after June 15, 2000 and which addressed certain issues causing
implementation difficulties for entities that apply SFAS No. 133,
respectively.
As of September 30, 2000, the Company has entered into certain
transactions which may be accounted for as derivatives upon adoption of
SFAS No. 133, as amended, including interest rate exchange agreements and
equity warrant agreements. The Company will adopt SFAS No. 133, as
amended, on January 1, 2001. The transition adjustment upon adoption will
be recorded to the Company's consolidated statement of operations as a
cumulative effect of change in accounting principle, net of tax.
Subsequent changes in the fair value of the Company's
5
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
derivatives will be recorded either through accumulated other
comprehensive income or through the Company's consolidated statement of
operations based upon the Company's designation of the derivative and the
Company's hedging strategy. The Company, while continuing to evaluate the
impact the adoption of SFAS No. 133, as amended, will have on its
financial position and results of operations, is currently unable to
estimate such impact due to the uncertainty of the derivatives that will
be held by the Company as of December 31, 2000 and their respective fair
values at that time.
SAB No. 101, as Amended
In December 1999, the staff of the SEC issued Staff Accounting Bulletin
("SAB") No. 101, "Revenue Recognition in Financial Statements," which
provides guidance in applying generally accepted accounting principles to
selected revenue recognition issues. In March 2000 and June 2000, the
staff of the SEC amended SAB No. 101 to delay the required implementation
date of SAB No. 101 to the fourth quarter of fiscal years beginning after
December 15, 1999. The Company adopted SAB No. 101, as amended, on October
1, 2000. The adoption of SAB No. 101, as amended, has not and is not
expected to have a material impact on the Company's results of operations.
Comprehensive Loss
Total comprehensive loss for the nine months ended September 30, 2000 and
1999 and for the three months ended September 30, 2000 and 1999 was $714.1
million, $173.1 million, $211.3 million and $83.2 million, respectively.
Total comprehensive loss includes net loss and unrealized gains (losses)
on marketable securities for the periods presented.
3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Acquisition of Lenfest Communications, Inc.
In January 2000, Comcast acquired Lenfest Communications, Inc.
("Lenfest"), a cable communications company serving subscribers primarily
in the Philadelphia area from AT&T Corp. ("AT&T") and the other Lenfest
stockholders for approximately 121.4 million shares of Comcast's Class A
Special Common Stock, subject to adjustment, with a value of $6.077
billion (the "Lenfest Acquisition"). In connection with the Lenfest
Acquisition, Comcast assumed approximately $1.326 billion of debt.
Immediately upon closing of the Lenfest Acquisition, Lenfest was merged
with and into LCI Holdings with LCI Holdings as the successor to Lenfest.
On August 1, 2000, LCI Holdings was merged into the Company (see Note 1).
Acquisition of CalPERS' Interest in Jointly Owned Cable Properties
In February 2000, the Company acquired the California Public Employees
Retirement System's ("CalPERS") 45% interest in Comcast MHCP Holdings,
L.L.C. ("Comcast MHCP"), formerly a 55% owned consolidated subsidiary of
the Company which serves subscribers in Michigan, New Jersey and Florida.
As a result, the Company now owns 100% of Comcast MHCP. The consideration
was $750.0 million in cash and was funded with the proceeds from a capital
contribution from Comcast.
Acquisition of Jones Intercable, Inc.
In April 1999, Comcast acquired a controlling interest in Jones
Intercable, Inc. ("Jones Intercable"), a cable communications company, for
aggregate consideration of $706.3 million in cash. Also on that date,
Comcast contributed its shares in Jones Intercable to the Company. In June
1999, Comcast purchased an additional 1.0 million shares of Jones
Intercable Class A Common Stock for $50.0 million in cash in a private
transaction and contributed such shares to the Company. The acquisitions
were accounted for under the purchase method of accounting.
In March 2000, the Jones Intercable shareholders approved a merger
agreement pursuant to which the Jones Intercable shareholders, including
the Company, received 1.4 shares of Comcast's Class A Special Common Stock
in exchange for each share of Jones Intercable Class A Common Stock and
Common Stock, and Jones Intercable was merged with and into JOIN Holdings,
with JOIN Holdings as the successor to Jones Intercable. In connection
with the closing of the merger, the Company exchanged its 39.6% interest
in Jones Intercable for approximately 23.3 million shares of Comcast Class
A Special Common Stock. As the consideration received for the Company's
6
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
interest in Jones Intercable was shares of Comcast Class A Special Common
Stock, the exchange had no significant impact on the Company's condensed
consolidated statement of cash flows during the nine months ended
September 30, 2000 (see Note 7).
In May 2000, the Company sold its interest in its wholly owned subsidiary
which held the Comcast Class A Special Common Stock to a wholly owned
subsidiary of Comcast in consideration for amounts due to affiliates
totaling $758.1 million related to management fees and programming charges
(see Note 6). The Company did not record any gain or loss on the
transaction as it was between subsidiaries under the common control of
Comcast. On August 1, 2000, JOIN Holdings was merged into the Company (see
Note 1).
Acquisition of Prime Communications LLC
In December 1998, Comcast agreed to invest in Prime Communications LLC
("Prime"), a cable communications company. Pursuant to the terms of this
agreement, in December 1998 Comcast acquired from Prime a $50.0 million
12.75% subordinated note due 2008 issued by Prime. In July 1999, Comcast
made a loan to Prime in the form of a $733.5 million 6% ten year note,
convertible into 90% of the equity of Prime. Since that time, Comcast made
an additional $70.0 million in loans to Prime (on the same terms as the
original loan). On August 1, 2000, the note, plus accrued interest of
$51.7 million on the note and the loans, was converted and the owners of
Prime sold their remaining 10% equity interest in Prime to Comcast for
$87.7 million. As a result, Comcast owned 100% of Prime and assumed
management control of Prime's operations (the "Prime Acquisition"). Upon
closing, Comcast immediately contributed Prime to the Company. Comcast's
contribution of Prime to the Company had no significant impact on the
Company's condensed consolidated statement of cash flows during the nine
months ended September 30, 2000 due to its noncash nature (see Note 7).
The Company assumed and repaid $532.0 million of Prime's debt with
proceeds from borrowings under existing credit facilities.
The acquisitions completed by Comcast and by the Company during the nine
months ended September 30, 2000 were accounted for under the purchase
method of accounting. As such, the operating results of the acquired
systems have been included in the Company's condensed consolidated
statement of operations and accumulated deficit from the acquisition date.
The Company adjusted the purchase price allocation related to the
Company's acquisitions of CalPERS' interest in Comcast MHCP and of the
public shareholders' interest in Jones Intercable during the second
quarter of 2000. The allocation of the purchase price for the acquisitions
completed during the nine months ended September 30, 2000 is preliminary
pending completion of final appraisals.
Unaudited Pro Forma Information
The following unaudited pro forma information for the nine months ended
September 30, 2000 and 1999 has been presented as if the acquisitions by
Comcast of Jones Intercable, Lenfest and Prime occurred on January 1,
1999. This information is based on historical results of operations,
adjusted for acquisition costs, and, in the opinion of management, is not
necessarily indicative of what the results would have been had the Company
operated Jones Intercable, Lenfest and Prime since January 1, 1999.
(Amounts in millions)
Nine Months Ended
September 30,
2000 1999
----------- ------------
Revenues............................... $3,057.6 $2,799.5
Net loss............................... ($721.1) ($643.3)
AT&T Agreement
As of August 11, 2000, Comcast and the Company entered into a revised
agreement with AT&T to exchange various cable communications systems.
Under the terms of the agreement, the Company will receive cable
communications systems serving approximately 770,000 subscribers. In
exchange, AT&T will receive systems that the Company currently owns
serving approximately 670,000 subscribers. At closing, the Company will
pay AT&T an equalizing payment of approximately $12 million, reflecting
the agreed upon difference in fair value of the
7
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
AT&T cable communications systems and the Company's cable communications
systems to be exchanged (subject to adjustment based on the actual number
of net subscribers acquired and the per subscriber price of certain
subscribers). The transaction is subject to customary closing conditions
and regulatory approvals and is expected to close in the fourth quarter of
2000 or the first quarter of 2001.
4. INVESTMENTS
Comcast Cablevision of Garden State, L.P.
As a result of the LCI Holdings merger into the Company (see Notes 1 and
3), the Company indirectly owns a 10% general partnership interest and a
40% limited partnership interest in Comcast Cablevision of Garden State,
L.P. ("Garden State Cable"), a cable communications company serving
subscribers in New Jersey. The Company accounts for its interest in Garden
State Cable under the equity method. Comcast indirectly owns the remaining
50% of Garden State Cable. As of September 30, 2000, the Company's
investment in Garden State Cable was $531.6 million.
Gains on Exchanges of Fair Value Method Investments
During the nine months ended September 30, 2000, in connection with the
merger of certain publicly traded companies held by the Company accounted
for as investments available for sale, the Company recognized a pre-tax
gain of $33.0 million, representing the difference between the fair value
of the securities received by the Company and the Company's cost basis in
the securities exchanged. Such gain was recorded as a reclassification
from accumulated other comprehensive income to investment income.
AT&T
As of September 30, 2000 and December 31, 1999, the Company holds
approximately 260,000 shares of AT&T common stock. As of September 30,
2000 and December 31, 1999, the Company has recorded its investment in
AT&T, classified as available for sale, at its fair value of $7.6 million
and $13.2 million, respectively.
As of August 11, 2000, Comcast and the Company entered into another
agreement with AT&T to acquire cable communications systems serving up to
700,000 subscribers from AT&T in exchange for AT&T common stock that
Comcast and the Company currently own or may acquire, in a transaction
intended to qualify as tax-free to Comcast, the Company and to AT&T.
Pursuant to the agreement, the agreed upon value of the cable
communications systems to be acquired by Comcast and the Company from AT&T
is up to $3.2 billion (subject to adjustment based on the actual number of
subscribers acquired). Also pursuant to the agreement, approximately 39.6
million shares of the AT&T common stock currently owned by Comcast will be
valued at $54.41 per share in the exchange. The transaction is subject to
customary closing conditions and regulatory approvals and is expected to
close in the first or second quarter of 2001.
5. LONG-TERM DEBT
Refinancing
In August 2000, subsequent to the Reorganization, the Company repaid and
retired all amounts outstanding under the existing bank credit facilities
of its cable communications subsidiaries and certain of Comcast's other
cable communications subsidiaries, totaling approximately $2.4 billion,
with the proceeds from a new senior bank credit facility and new
commercial paper program. The Company's new senior bank credit facility
consists of a $2.25 billion, five-year revolving senior credit facility
and a $2.25 billion, 364-day revolving credit facility. The 364-day
revolving credit facility supports the Company's new commercial paper
program. The Company borrowed $1.4 billion under the five-year facility
and $1.0 billion under the commercial paper program to repay and retire
the subsidiaries' credit facilities.
Debt Assumed
In connection with the Reorganization and the contribution by Comcast of
Prime to the Company (see Notes 1 and 3), the Company assumed aggregate
debt of $2.061 billion with interest rates ranging between 6.95% and
10.5%, and maturities between 2001 and 2008.
8
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Extraordinary Items
Extraordinary items during the nine and three months ended September 30,
2000 of $6.1 million and $1.0 million, respectively, consist of
unamortized debt issue costs and debt extinguishment costs, net of related
tax benefits, expensed principally in connection with the redemption and
retirement of certain indebtedness. During the nine and three months ended
September 30, 2000, extraordinary items include $3.3 million of gains, net
of related tax expense, recognized on the termination of related interest
rate exchange agreements.
Interest Rates
As of September 30, 2000 and December 31, 1999, the Company's effective
weighted average interest rate on its long-term debt outstanding was 7.77%
and 7.56%, respectively.
Lines of Credit
As of September 30, 2000, the Company had unused lines of credit of $2.079
billion under its new senior bank credit facility.
6. RELATED PARTY TRANSACTIONS
Comcast, on behalf of the Company, has an affiliation agreement with QVC,
Inc. ("QVC"), an electronic retailer and a majority owned and controlled
subsidiary of Comcast, to carry its programming. In return for carrying
QVC programming, the Company receives an allocated portion, based upon
market share, of a percentage of net sales of merchandise sold to QVC
customers located in the Company's service area. For the nine months ended
September 30, 2000 and 1999 and for the three months ended September 30,
2000 and 1999, the Company's service income includes $9.0 million, $7.2
million, $2.1 million and $2.4 million, respectively, relating to QVC.
Through July 31, 2000, Comcast, through management agreements, managed the
operations of the Company's subsidiaries, including rebuilds and upgrades.
The management agreements generally provided that Comcast would supervise
the management and operations of the cable systems and arrange for and
supervise certain administrative functions. As compensation for such
services, the agreements provided for Comcast to charge management fees of
up to 6% of gross revenues. Comcast charged the Company's subsidiaries
management fees of $145.5 million, $118.4 million, $24.3 million and $43.0
million during the nine months ended September 30, 2000 and 1999 and
during the three months ended September 30, 2000 and 1999, respectively.
These charges are included in selling, general and administrative expenses
in the Company's condensed consolidated statement of operations and
accumulated deficit.
On behalf of the Company, Comcast secured long-term programming contracts
that generally provided for payment based on either a monthly fee per
subscriber per channel or a percentage of certain subscriber revenues.
Through July 31, 2000, Comcast charged each of the Company's subsidiaries
for programming on a basis which generally approximated the amount each
such subsidiary would be charged if it purchased such programming directly
from the supplier, subject to limitations imposed by debt facilities for
certain subsidiaries, and did not benefit from the purchasing power of
Comcast's consolidated operations. Amounts charged to the Company by
Comcast for programming (the "Programming Charges") are included in
operating expenses in the Company's condensed consolidated statement of
operations and accumulated deficit. The Company purchases certain other
services, including insurance and employee benefits, from Comcast under
cost-sharing arrangements on terms that reflect Comcast's actual cost. The
Company reimburses Comcast for certain other costs (primarily salaries)
under cost-reimbursement arrangements. Under all of these arrangements,
the Company incurred total expenses of $984.5 million, $720.0 million,
$312.3 million and $252.5 million, including $835.6 million, $612.8
million, $270.7 million and $211.6 million of Programming Charges, during
the nine months ended September 30, 2000 and 1999 and during the three
months ended September 30, 2000 and 1999, respectively. The Programming
Charges include $85.9 million, $59.7 million, $22.2 million and $18.5
million during the nine months ended September 30, 2000 and 1999 and
during the three months ended September 30, 2000 and 1999, respectively,
relating to programming purchased by the Company, through Comcast, from
suppliers in which Comcast holds an equity interest.
9
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
Effective August 1, 2000, Comcast assigned its intercompany management and
programming agreements with the Company's subsidiaries and with certain of
Comcast's other cable communications subsidiaries to the Company. As such,
effective August 1, 2000, amounts charged by the Company to the Company's
subsidiaries for management fees and programming are eliminated in the
Company's consolidated financial statements.
The Company has entered into a custodial account arrangement with Comcast
Financial Agency Corporation ("CFAC"), a wholly owned subsidiary of
Comcast, under which CFAC provides cash management services to the
Company. Under this arrangement, the Company's cash receipts are deposited
with and held by CFAC, as custodian and agent, which invests and disburses
such funds at the direction of the Company. As of December 31, 1999, $34.0
million of the Company's cash was held by CFAC. This amount has been
classified as cash held by an affiliate in the Company's condensed
consolidated balance sheet. During the nine months ended September 30,
2000 and 1999 and during the three months ended September 30, 2000 and
1999, the Company recognized investment income of $4.3 million, $1.2
million, $1.8 million and $0.4 million, respectively, on cash held by
CFAC.
As of September 30, 2000, current due from affiliates in the Company's
condensed consolidated balance sheet includes amounts due from Comcast and
its affiliates, partially offset by amounts due to CFAC. As of December
31, 1999, current due to affiliates in the Company's condensed
consolidated balance sheet includes amounts due to Comcast and its
affiliates under the cost-sharing arrangements described above, and
amounts payable to Comcast and its affiliates as reimbursement for
payments made, in the ordinary course of business, by such affiliates on
behalf of the Company.
7. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
During the nine months ended September 30, 2000, the Company acquired the
assets and liabilities and/or partnership interests of Lenfest, Jones
Intercable, Prime and Comcast MHCP, principally through mergers or
contributions from Comcast (see Note 3). The fair values of the assets and
liabilities acquired by the Company during the nine months ended September
30, 2000 are presented as follows (in millions):
Current assets....................................... $195.2
Investments.......................................... 668.0
Property, plant & equipment.......................... 1,043.5
Deferred charges..................................... 11,708.0
Current liabilities.................................. (258.5)
Long-term debt....................................... (2,061.2)
Deferred incomes taxes............................... (2,854.3)
----------
Net assets acquired........................ $8,440.7
==========
The Company made cash payments for interest on its long-term debt of
$288.9 million, $180.0 million, $53.8 million and $41.5 million during the
nine months ended September 30, 2000 and 1999 and during the three months
ended September 30, 2000 and 1999, respectively. The Company made cash
payments for interest on the notes payable to affiliates of $0.2 million
during the nine months September 30, 1999.
The Company made cash payments for state income taxes of $5.7 million,
$4.8 million, $1.4 million and $1.4 million during the nine months ended
September 30, 2000 and 1999 and during the three months ended September
30, 2000 and 1999, respectively.
8. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position, results of operations or liquidity of the
Company.
10
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information for this item is omitted pursuant to Securities and Exchange
Commission General Instruction H to Form 10-Q, except as noted below.
Results of Operations
- ---------------------
Our summarized consolidated financial information for the nine and three
months ended September 30, 2000 and 1999 is as follows (dollars in millions,
"NM" denotes percentage is not meaningful):
Nine Months Ended
September 30, Increase / (Decrease)
2000 1999 $ %
--------- --------- -------- --------
Service income.......................................................... $2,922.7 $2,115.9 $806.8 38.1%
Operating, selling, general and administrative expenses................. 1,880.0 1,407.5 472.5 33.6
--------- --------- -------- --------
Operating income before depreciation and amortization (1)............... 1,042.7 708.4 334.3 47.2
Depreciation and amortization........................................... 1,549.5 718.9 830.6 NM
--------- --------- -------- --------
Operating loss.......................................................... (506.8) (10.5) 496.3 NM
--------- --------- -------- --------
Interest expense........................................................ 370.6 254.7 115.9 45.5
Interest expense in notes payable to affiliates......................... 5.2 (5.2) NM
Investment (income) expense and other, net.............................. (27.8) 0.5 (28.3) NM
Equity in net losses of affiliates...................................... 14.1 1.5 12.6 NM
Income tax benefit...................................................... (234.4) (18.8) 215.6 NM
Minority interest....................................................... (82.6) (82.6) NM
--------- --------- -------- --------
Loss before extraordinary items......................................... ($629.3) ($171.0) $458.3 NM
========= ========= ======== ========
Three Months Ended
September 30, Increase / (Decrease)
2000 1999 $ %
--------- --------- -------- --------
Service income.......................................................... $1,013.4 $762.3 $251.1 32.9%
Operating, selling, general and administrative expenses................. 590.2 500.0 90.2 18.0
--------- --------- -------- --------
Operating income before depreciation and amortization (1)............... 423.2 262.3 160.9 61.3
Depreciation and amortization........................................... 564.5 264.2 300.3 NM
--------- --------- -------- --------
Operating loss.......................................................... (141.3) (1.9) 139.4 NM
--------- --------- -------- --------
Interest expense........................................................ 129.7 95.7 34.0 35.5
Interest expense on notes payable to affiliates......................... 1.6 (1.6) NM
Investment expense (income) and other, net.............................. 3.8 (3.4) 7.2 NM
Equity in net losses (income) of affiliates............................. 6.6 (1.0) 7.6 NM
Income tax (benefit) expense............................................ (77.0) 11.0 (88.0) NM
Minority interest....................................................... (24.9) (24.9) NM
--------- --------- -------- --------
Loss before extraordinary items......................................... ($204.4) ($80.9) $123.5 NM
========= ========= ======== ========
<FN>
- ------------
(1) Operating income before depreciation and amortization is commonly referred
to in the cable communications business as "operating cash flow."
Operating cash flow is a measure of a company's ability to generate cash
to service its obligations, including debt service obligations, and to
finance capital and other expenditures. In part due to the capital
intensive nature of the cable communications business and the resulting
significant level of non-cash depreciation and amortization expense,
operating cash flow is frequently used as one of the bases for comparing
businesses in the cable communications industry, although our measure of
operating cash flow may not be comparable to similarly titled measures of
other companies. Operating cash flow is the primary basis used by our
management to measure the operating performance of our business. Operating
cash flow does not purport to represent net income or net cash provided by
operating activities, as those terms are defined under generally accepted
accounting principles, and should not be considered as an alternative to
such measurements as an indicator of our performance.
</FN>
11
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
On August 1, 2000, two wholly owned subsidiaries of Comcast Corporation
("Comcast"), Comcast LCI Holdings, Inc. ("LCI Holdings") and Comcast JOIN
Holdings, Inc. ("JOIN Holdings") were merged into us (the "Reorganization").
JOIN Holdings owned cable systems and was acquired by Comcast in April 1999 and
March 2000. LCI Holdings owned cable systems and was acquired by Comcast in
January 2000. The Reorganization was accounted for at Comcast's historical costs
in a manner similar to a pooling of interests. Accordingly, our condensed
consolidated financial statements include the accounts of the merged
subsidiaries since the dates of their acquisition by Comcast.
On August 1, 2000, Comcast acquired Prime Communications, LLC ("Prime").
Upon closing, Comcast immediately contributed Prime to the Company (the "Prime
Contribution"). The acquisition was accounted for under the purchase method of
accounting. As such, the operating results of Prime have been included in the
Company's condensed consolidated statement of operations and accumulated deficit
from the acquisition date.
See Notes 1 and 3 to our condensed consolidated financial statements
included in Item 1.
The effects of the Reorganization and the Prime Contribution were to
increase our revenues and expenses, resulting in increases in our operating
income before depreciation and amortization. The increases in our property and
equipment, deferred charges and long-term debt (see Note 7 to our condensed
consolidated financial statements included in Item 1) and the corresponding
increases in depreciation expense, amortization expense and interest expense for
the nine and three month periods from 1999 to 2000 are primarily due to the
effects of the Reorganization and the Prime Contribution, as well as our
increased levels of capital expenditures.
Service Income
Of the respective $806.8 million and $251.1 million increases for the nine
and three month periods from 1999 to 2000, $648.4 million and $203.9 million are
due to the effects of our acquisitions of cable communications systems and
$158.4 million and $47.2 million are due to growth in our historical operations.
Of the respective $158.4 million and $47.2 million increases related to our
historical operations, $66.5 million and $19.3 million are due principally to
subscriber growth in digital cable and cable modem Internet access service,
$17.5 million and $4.6 million are due to subscriber growth in analog cable
service, $60.2 million and $19.3 million are related to changes in rates, $14.8
million and $4.9 million are attributable to growth in cable advertising sales
and ($0.4) million and ($0.7) million are related to decreases in pay per view
revenue as a result of fewer events.
Operating, Selling, General and Administrative Expenses
See Note 6 to our condensed consolidated financial statements included in
Item 1.
Of the respective $472.5 million and $90.2 million increases for the nine
and three month periods from 1999 to 2000, $351.2 million and $106.9 million are
due to the effects of our acquisitions of cable communications systems, $120.4
million and $35.2 million are due to growth in our historical operations and
$0.9 million and ($51.9) million are due to Comcast's assignment of its
intercompany management and programming contracts to us (see Note 6 to our
condensed consolidated financial statements included in Item 1). Of the
respective $120.4 million and $35.2 million increases related to our historical
operations, $48.4 million and $16.4 million are due to increases in the costs of
cable programming as a result of changes in rates, subscriber growth and
additional channel offerings, $33.4 million and $9.4 million are due principally
to subscriber growth in cable modem Internet access service, and $38.6 million
and $9.4 million result from increases in labor costs and other volume related
expenses.
Interest Expense
The $115.9 million and $34.0 million increases in interest expense for the
nine and three month periods from 1999 to 2000 are primarily due to the effects
of the merger of LCI Holdings and JOIN Holdings into us offset, in part, by the
effects of our repayments and retirement of debt.
We anticipate that, for the foreseeable future, interest expense will be a
significant cost to us and will have a significant adverse effect on our ability
to realize net earnings. We believe we will continue to be able to meet our
obligations through our ability both to generate operating income before
depreciation and amortization and to obtain external financing.
Equity in Net Losses (Income) of Affiliates
As a result of the merger of LCI Holdings into us, we indirectly own a 10%
general partnership interest and a 40% limited partnership interest in Comcast
Cablevision of Garden State, L.P. ("Garden State Cable"), a cable
12
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
communications company serving subscribers in New Jersey. We account for our
interest in Garden State Cable under the equity method. Comcast indirectly owns
the remaining 50% of Garden State Cable.
Investment (Income) Expense and Other, Net
During the nine months ended September 30, 2000, in connection with the
merger of certain publicly traded companies held by us and accounted for as
investments available for sale, we recognized a pre-tax gain of $33.0 million,
representing the difference between the fair value of the securities received by
us and our basis in the securities exchanged. This gain was recorded as a
reclassification from accumulated other comprehensive income to investment
income.
Income Tax Benefit
The respective $215.6 million and $88.0 million increases for the nine and
three month periods from 1999 to 2000 are primarily the result of the effects of
the increase in our loss before income tax (benefit) expense and minority
interest, and to the increase in our valuation allowance.
Minority Interest
The respective $82.6 million and $24.9 million decreases for the nine and
three month periods from 1999 to 2000 are primarily due to the effects of
Comcast's contribution of Jones Intercable to us in April 1999 and to the
effects of our acquisition of the minority interest of Comcast MHCP Holdings,
L.L.C. in February 2000.
We believe that our operations are not materially affected by inflation.
Anticipated Transactions
Comcast intends to contribute its 50% interest in Garden State Cable to us
and merge its subsidiary, Comcast Cablevision of Philadelphia Area I, Inc.
("Greater Philadelphia") with and into us (together, the "Anticipated
Transactions"). The Anticipated Transactions are expected to close by December
31, 2000, subject to receipt of regulatory approvals. Garden State Cable will be
a consolidated subsidiary of ours upon Comcast's contribution of its 50%
interest in Garden State Cable to us. Greater Philadelphia was acquired by
Comcast on June 30, 1999 for approximately 8.5 million shares of Comcast Class A
Special Common Stock with a value of $291.7 million. Upon closing, the
Anticipated Transactions will be accounted for at Comcast's historical cost, in
a manner similar to a pooling of interests and our consolidated financial
statements will include the results of Garden State Cable and Greater
Philadelphia since the dates of their acquisition by Comcast.
13
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
PART II. OTHER INFORMATION
- -------- -----------------
ITEM 1. LEGAL PROCEEDINGS
We are subject to legal proceedings and claims which arise in the ordinary
course of our business. In the opinion of our management, the amount of
ultimate liability with respect to these actions will not materially affect
our financial position, results of operations or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
10.1 Agreement and Plan of Merger, dated as of July 28, 2000, by and
among Comcast Cable Communications, Inc., Comcast LCI Holdings,
Inc., formerly a wholly owned subsidiary of Comcast Corporation
("Comcast") and Comcast JOIN Holdings, Inc., formerly a wholly
owned subsidiary of Comcast (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed on
September 27, 2000).
10.2 Asset Exchange Agreement, dated as of August 11, 2000, among
AT&T Corp. and Comcast Corporation (incorporated by reference to
Exhibit 10.1 to the Comcast Corporation Quarterly Report on Form
10-Q for the Quarter Ended September 30, 2000).
10.3 Agreement and Plan of Reorganization, dated as of August 11,
2000, among Comcast Corporation, Comcast Cable Communications,
Inc., Comcast CCCI II, LLC, Comcast Teleport, Inc., Comcast
Heritage, Inc., Comcast Communications Properties, Inc., and
AT&T Corp. (incorporated by reference to Exhibit 10.2 to the
Comcast Corporation Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2000).
10.4 Five-Year Revolving Credit Agreement, dated as of August 24,
2000, among Comcast Cable Communications, Inc. and the Financial
Institutions Party Hereto, Banc of America Securities LLC and
Chase Securities Inc., as Joint Lead Arrangers and Joint Book
Managers, BNY Capital Markets, Inc. and Salomon Smith Barney
Inc., as Co-Arrangers, Bank of America, N.A., as Administrative
Agent, Swing Line Lender and Letter of Credit Issuing Lender,
Chase Securities Inc., as Syndication Agent and Citibank, N.A.
and The Bank of New York, as Co-Documentation Agents.
10.5 364-Day Revolving Credit Agreement, dated as of August 24, 2000,
among Comcast Cable Communications, Inc. and the Financial
Institutions Party Hereto, Banc of America Securities LLC and
Chase Securities Inc., as Joint Lead Arrangers and Joint Book
Managers, BNY Capital Markets, Inc. and Salomon Smith Barney
Inc., as Co-Arrangers, Bank of America, N.A., as Administrative
Agent, Chase Securities Inc., as Syndication Agent and Citibank,
N.A. and The Bank of New York, as Co- Documentation Agents.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
We filed a Current Report on Form 8-K under Item 5 and Item 7 on
September 27, 2000 which included our Unaudited Pro Forma Condensed
Consolidated Financial Statements giving effect to the merger of
Comcast LCI Holdings, Inc. and Comcast JOIN Holdings, Inc. into us and
the pending contribution to us of Comcast's 50% interest in Comcast
Cablevision of Garden State, LP, and the merger of Comcast Cablevision
of Philadelphia Area I, Inc. into us.
14
COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMCAST CABLE COMMUNICATIONS, INC.
------------------------------
/s/ LAWRENCE J. SALVA
------------------------------
Lawrence J. Salva
Senior Vice President
(Principal Accounting Officer)
Date: November 14, 2000
15